Here’s why Amazon needs retail stores right now



At first glance, it doesn’t even seem like a contest. Actions of the e-commerce giant Amazon (NASDAQ: AMZN) have not only surpassed those of their traditional rival Walmart (NYSE: WMT) in recent years, but since last month – according to figures calculated by The New York Times – people are now spending more at Amazon than at the more traditional retailer. The pandemic has clearly been a boon to the online “any store”.

However, if you think this is just another clear sign that nothing can stand against the Amazon juggernaut, you may be a little premature to draw that conclusion. Walmart made a small dent in Amazon Prime’s reach by posting respectable growth from its own comparable subscription program, Walmart +.

The service can direct some of Amazon’s current and potential customers to the store-centric business. And more of the same could be to come.

Image source: Getty Images.

32 million and more

Take the following reported number with at least a small grain of salt, as Walmart has neither confirmed nor denied it. Corn German Bankthe recent estimate of 32 million US homes with Walmart + is probably in the right approximation. As a perspective, Amazon Prime has over 200 million Prime subscribers, although that’s a global figure.

It’s a good start for Walmart’s subscription service which launched only a year ago, and it doesn’t even include access to a large library of digital entertainment content like Amazon Prime does. On the contrary, the main selling feature of Walmart + is the free and unlimited delivery of online orders fulfilled by stores nearby – sometimes on the same day – at a price similar to that of $ 12.95 per month or $ 98 per month. year. This seems to be enough for some consumers, especially with the offer softened by fuel discounts.

The appeal of Walmart + in a market where Amazon Prime is also available is obvious: speed and convenience, with better access to perishables. Amazon is able to make same day deliveries to some markets. But it can’t offer same-day or next-day deliveries of as many high-demand products as Walmart can thanks to Walmart’s network of more than 5,000 stores in the United States as a way to process online orders.

A study commissioned by ACI in the world and quantifies the idea, indicating that ease and convenience are currently the top concerns for 76% of online grocery shoppers, exceeding the risks of COVID-19. COVID-19 was only a concern for 59% of 2,342 adults surveyed. Notably, 94% of those surveyed said they would buy in-store at least once in a while. It’s a detail that gives Walmart a serious head start over Amazon, which isn’t a big grocery or other consumer goods retailer.

On tiptoe on the Amazon turf

There are a few additional details buried deeper in the results of the Deutsche Bank survey that cast doubt on Amazon’s ability to attract and retain Prime subscribers, who are known to spend at least twice as much on the site as non-Prime. consumers do.

One of those nuances is that 86% of Walmart + subscribers say they’re Prime members too.

It makes sense on the surface. Serious online shoppers are likely to find that paying for the two similar services always pays off. Both retailers carry a lot of items, but neither offer everything a consumer could possibly need. If money is tight, however, consumers may narrow down these services to just one. With the wave of cheap on-demand / streaming services now available, Prime’s library of content has never been easier or more affordable to give up.

A Walmart employee stands in an aisle and searches for an item on a store shelf

Image source: Walmart.

The other notable nuance of the survey results is the type of customers Walmart + attracts. These consumers tend to be in the upper end of the income bracket. Deutsche Bank says 33% of current Walmart + members live in households earning more than $ 100,000 a year. Only 28% of Prime subscribers can say the same.

Put simply, Walmart is making inroads with a crowd that, to date, has been almost exclusively that of Amazon. Another subtlety such as access to on-demand content could accelerate this penetration.

Location, location, location

Last month The the Wall Street newspaper reported that Amazon is considering developing its own network of large-scale stores capable of selling products such as clothing, housewares and consumer electronics. The company itself has neither confirmed nor denied the NewspaperThe suggestion of, which was based on comments from anonymous “people familiar with the matter”. But given the apparent early success of Walmart +, a larger store network that looks a bit like Walmart’s might be more of a staple for Amazon than a need.

Currently, Amazon operates a few dozen convenience and grocery stores, several conventional bookstores, and even more so-called “4-star” stores that carry some of the website’s best-selling items. Remember, Amazon is also the parent company of Whole Foods Market, a chain of over 500 North American conventional grocery stores.

It’s still far from Walmart’s geographic reach, however. The large brick and mortar retailer has more than 5,000 stores that double as mini-warehouses that it operates to meet consumer desire for a combination of speed, convenience and local in-store shopping.

Moral of the story: Walmart won’t destroy Amazon, but it could certainly create headwinds for the company.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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